🔒 WEBINAR: Brexit leaves her mark, newly purchased Barclays hammered

It’s a month where Brexit made her mark. Especially with newly purchased Barclays PLC, which is down 30 percent. But the Biznews.com Global Share Portfolio is built on Warren Buffett foundations, and the market noise doesn’t take away from the fact that all the stocks held, are well run companies, and held with the intention of forever. Despite the hiccup, the portfolio is still showing a healthy gain of 26 percent on an annualised basis in Rand terms. As always Alec Hogg takes us through the performance and current position of the portfolio, providing a comprehensive breakdown of how the shares are doing and how the companies, split between the likes of Apple, Amazon, Barclays, Berkshire Hathaway, Alphabet, IBM and Novo Nordisk are performing. – Stuart Lowman

Here we go with the June edition of the Biznews Global Share Portfolio. My goodness, what a rocky ride we’ve had over the past month. The good news is that the Portfolio has held up very well, relatively speaking. The bad news is the shock absorbers after the Brexit exit were not in play. We took quite a hit on our Barclays share that we only bought two months ago, but it shows you can never ever tell what’s around the corner for you, in investing. I guess that’s a good lesson for anybody. When you make your investments into a share portfolio, the unexpected does happen quite often.
___STEADY_PAYWALL___

Let’s just quickly go back on the Brexit shock and why it has taken the international markets by storm in the way that it has, and knocked down the S&P 500 Index. In fact, up until a month ago (or up until just over a week ago), the S&P 500 Index was tracking 2.5 percent higher for the past 12 months. It’s now down 2.7 so there’s been a five-percentage point drop in U.S. Dollar terms in the S&P 500 Index. If you happen to be invested there in Pounds, you would have taken a 15 percent hiding if you consider that the Pound has dropped by ten percent since Brexit. What happened? Well, the polls suggested that it was going to be a close-run thing. The inside information that I had from the Remain camp (in other words, those who were wanting Britain to stay within the EU) said that they expected to win it, but it was going to be very close.

They were nervous. The bookmakers had actually predicted a very comfortable win for Remain. As it happens, the bookmakers were horribly wrong. Just to put it into perspective, if you’d taken a bet on Remain just before the referendum closed, you would have gotten 27 times the profit that was being offered on a bet to exit. Why were the bookmakers so wrong? Well, in the aftermath of all of this, there’ve been all kinds of post-mortems. I spoke to Dan Brocklebank, who is one of the top guys at Orbis – the Allan Gray international operation based here in London – and he said, “Of course, the penny dropped afterwards if you consider that the money that was being bet on Remain came from asset managers (no doubt), hedge funds, and people who have quite a lot of resources. Whereas the money that was being bet on exiting or Leave, were lots of small bets.”

On the one hand, you had big volumes of money coming from relatively few betters and then a lot of small bets on the other side, which was clearly not going to be able to swing the money volume. When they go into the polling booths of course, everybody has one vote so the Remain camp were hugely outnumbered when you look at the number of physical bets that were being placed. On the other hand, the volume of money that they were throwing at it, was higher. We live and learn. The last election, when the Scots decided not to leave the Union (that as the U.K.) at that stage, the polls got it all wrong as they did in the last British election, but the punters got it right. This time around, the polls were a little more accurate and the odds were all over the place. That explains why the betting odds were so wrong and there was such a shock in the market.

What happened this time around… In the last two political events, the markets followed what the odds were saying and the odds as a result, did not prepare investors for their own drop. Thus, we’re seeing ten percent in the Pound and the sharp drop in the FTSE Index. Of course, the hardest hit in this situation are banking shares. They were hammered. We have the misfortune of owning a banking share in Barclays PLC which, as you’ll see when we get into the portfolio in a moment, was one of the hardest hit of the lot. It bounced back six percent yesterday, but it’s still more than 20 percent off where it was, ahead of the referendum. Why is that? A lower Pound and higher interest rates are not necessarily good for banking shares when you overlay a weak economy. High interest rates are not bad for banking shares generally, but when you overlay a weak economy, which means bad debts go up…it’s not a good thing.

What we need to do in this kind of circumstance where you have these external shocks, is to go back to basics. When you go back to basics, what is it that Warren Buffett would be recommending to us? Well, he’d be saying ‘before you buy a share, turn off/imagine what happens if you turn off the stock market for five (or maybe ten) years’.

1. If you were to do that; when we have a look at the other requirements, you’ve got to understand the business. It’s got to have favourable long-term economics. It’s got to have able and trustworthy management, possess an enduring moat, and trade at a discount to its intrinsic value. You add all of that together and when we apply Barclays, some people are now saying ‘my goodness, you bought Barclays two months ago.
2. Should you be panicking and selling it now that it’s down by two percent?’ Well, definitely not. In fact, it’s looking like a fantastic buy right now. Go through all of it.
3. In ten years’ time, will Barclays still be around? Well, it’s been around more than 100 years so almost certainly, yes. Do we understand the business? Yes. It’s mainly a retail bank in the High Street.
4. Favourable long-term economics? Definitely. No matter what is happening in the payments environment (and Fintech is starting to disrupt quite aggressively around the world), this is still a business that is based primarily in a country where people don’t change that rapidly. There’s a lot of regulatory protection as well for banks in the U.K. They’re in the business of borrowing and lending and that’s never going to go out of fashion. Able and trustworthy management: it wasn’t the case but when John Macfarlane took over as Chairman and he put in James Staley as the CEO, it ticks that box as well.
5. Does it have an enduring moat? Most definitely. Barclays is a High Street bank in the U.K. It has a very strong brand and in this country (and I’m talking to you from London, of course – that’s why I say this country), the turnover of the retail market is only one percent. In a year, you would have banking accounts that are held by people in Britain in the retail market. Roughly one in 100 people would bother to change their banking accounts. You’d think it would be much easier to get them opened. Well, it isn’t. It’s a tough thing to do but certainly, they don’t change their banking accounts and that means you’ve got an enduring moat sitting at Barclays.
6. Intrinsic value: Barclays’ shares are currently trading at 131 pence. They got down as low as 124 pence per share. They’re down 29 percent right now from where they were trading before the Brexit vote.

That is a massive discount on the tangible book value which, depending on where you look at it, in their balance sheet it’s 275 pence. In other words, that’s your real underlying net assets. If you were to liquidate the bank today, pay back everybody that is owed money, and get in all the money that you are owed, you would have a price-to-book here where the shares are trading right now, of point-six-seven percent. If you were trading at tangible asset value, you’d be trading about one-third higher than where the shares are at the moment. Price-to-book of point-six-seven. That’s a massive discount. There’s a margin of safety there. All the other boxes are ticked. This is a stock that, in the wake of Brexit, should be right on the top of your buying list. Is Brexit actually going to happen? Well, of course it is but it’s not going to happen without a struggle.

The British public have voted 52/48 percent to leave the European Union. In the Financial Times of London today, Gideon Rachman (who incidentally, has a South African heritage as well) – and he argues this very well – said, “It’s not the first time that you’ve had a referendum that’s gone against the European Union.” In 1992, Denmark rejected the Maastricht Treaty and in 2001 and 2008, Ireland rejected the two proposals the European Union had put forward – all in their first referendum. As a consequence of the rejections, concessions were granted by the EU and there was a second referendum in each case. Gideon is arguing that the Brits will possibly be allowed a second referendum. It’s a cogent argument and one that is shared by many people, including those who are watching the probable next Prime Minister of Britain – Boris Johnson – who incidentally, was a journalist at the time that the Danes voted against the Maastricht Treaty.

He was a journalist, employed in Brussels at the EU. That was in 1992 so he’s seen this kind of thing (this movie) from the front row. On the other hand, the problem with that thesis (one feels) is that the French, the Austrians, and Scandinavians are all – in polls – ahead of Brexit. All of those polls were suggesting that they wanted to get out more than the Brits wanted to get out. When you’re looking at where the EU is sitting, it becomes a very, very interesting situation in whether Brexit is going forward or not. Whatever… We can only work with the market as it is today and the reaction/knock-on effect of the British decision to leave the EU has to create uncertainty. Markets hate uncertainty. The Pound is down from $1.50 (just before the referendum).

Incidentally, the final exit poll that was done, said that the Remain camp would win 52/48. The final result was the other way around so the pollsters haven’t come out of this with much credit. Just about nobody who was prepared to predict it (and there were lots who did that), actually got this one right. London now, was one of the parts of the U.K., together with Scotland and Northern Ireland, which voted in favour of staying in the EU. It now wants more autonomy. There are all kinds of consequences that could come from all of this. The Pound is down from $1.50 to $1.32. Imagine, if you’re an American and you come to London, it would cost you $1.50 per Pound. Now, it would only cost you $1.32. David Cameron’s on his way to Brussels. He of course, has resigned as well. The U.K. Sovereign rating (and we know all about the decline in Sovereign ratings in South Africa) has been cut by S&P.

The last one that had them, had a Triple-A. Cameron’s successor is due to be named on the 2^nd of September. Corbyn, who’s the official opposition, has had his shadow cabinet abandon him in droves – 46 resignations from his shadow cabinet. There’s all kinds of controversy and turbulence, which the Brits are not used to. Remember, in South Africa… South Africa has gone through great change over the last 20/25 years. In the U.K., there’s been change but it’s been at the margins. It hasn’t been an uproar like this has happened so clearly, there is lots to digest, lots of uncertainty, and we see the markets reacting the way that they have. When you go over the water to the United States; even there, the uncertainty coming out of Britain (and remember, depending on the exchange rate, Britain is either the 5^th of the 6^th biggest economy on earth), that has had a knock-on effect in the United States no least because people are now very seriously believing that Donald Trump could be the next President there, and with all that that implies.

The Vanguard S&P 500 Index, in the wake of Brexit, has fallen by five percentage points and that means that after being ‘level pegging’ for most of the last 18 months since our portfolio has been running, it is now in negative territories. If you’d taken money in the United States, and put it into the market generally, you would be down three percent. Our portfolio – overall -is up seven percent in U.S. Dollar terms. If you want to think about a bottom-line number, the portfolio that we’ve put together and continue to stick with has outperformed the market by ten percentage points in those 18 months, and that is very gratifying indeed, in these kinds of troubled circumstances. When you go through the portfolio, it’s very easy to see it hasn’t been ‘even keel’ riding there.

Alphabet, in which one-third of the… The way we worked it out is we put roughly one-third of the portfolio into the Vanguard S&P 500 Index (in other words, into the market generally). Then we split 15 percent each into Alphabet (or the old Google), Apple, and Berkshire Hathaway.

Berkshire has performed in line with the market as you would expect, because Berkshire is a broadly based industrial conglomerate. It’s down by seven percent in Dollar terms, but its performed in line with the overall market, which is down by three percent. Nothing shocking there.

Apple, on the other hand, has been a terrible underperformer. That’s down by 26 percent whereas Alphabet (or Google) is up 25 percent so of the Big 3; one has performed with the market and Alphabet has offset the losses on Apple.

Generally speaking, we have a market position if you like, for most of it. Where the upside has come in this portfolio, has been through Amazon.com and as you can see there, in U.S. Dollar terms that’s up 111 percent since we bought into it. It’s our version of Naspers, if you like. In South African portfolios, it’s been the tiger. It’s been the one thing that’s pulled the portfolio higher and that’s what stock-picking is about. You try and find that one that shoots the lights. Very fortunately, in our case, we found that.

Novo Nordisk has been a good performer although, like most shares around the world, came under pressure in this past week since Brexit.

IBM has been an underperformer but again, it’s a value stock so that is not really a worry to us. You can keep accumulating IBM. Value shares take time to realise their potential. Then you have Barclays, which was directly in the tsunami of Brexit and that which we bought on the 29^th of April at £1.74… It was sitting at £1.90 ahead of Brexit. It’s now down to £1.37. That’s the overall portfolio.

Of course, this is in U.S. Dollar terms. What we need to consider as South African investors, is Rands. If you go back to the beginning of the portfolio… When we started the portfolio, we took a view that the South African Rand would be weak because the economic policies being followed by the Zuma administration were unlikely to lead to (a) growth or (b) as a consequence of that, an appreciation of the currency. In fact, the currency is locked through bad economic decisions and strategies into a sliding decline. Thankfully, not of the Zimbabwean nature but it has been falling and is likely, unless there’s some restructuring of the type that the Finance Minister Pravin Gordhan has called for urgently (but nothing seems to have happened), the Rand will continue to weaken.

That was our big bet. Our big bet when we started this portfolio in December 2014, was that the Rand would weaken. Take your money offshore. Put it into the international market and let’s try and find stocks over there that will outperform the market generally. By that criteria, we have to say that so far, the portfolio has been a successful exercise. On the one count, the Rand view has certainly come to fruition as you can see from the bottom of the table there. When we started the portfolio on the 5^th of December, the Rand was R11.27 to the U.S. Dollar. After clawing back some of the recent losses, it’s still at R15.20. Clearly, when you have your money in Dollar-denominated assets as we have here, it makes a huge impact.

As far as the Pound is concerned, when we bought into Barclays the Rand was at R20.88 against the Pound. The Pound is now 20.23 so even after Nenegate, the Rand had managed to claw back a little bit of that loss against the Pound. Pre-Nenegate in December last year, the Rand was trading at R18.00 to the Pound. It’s now at R20.00 to the Pound but the Pound itself has been the one under much pressure because of Brexit. When we then have a look down the far right-hand column (because this tells you whether or not it’s been a sensible investment in taking the decisions that we did to go big into a global portfolio from December 2014) … As you can see, even in Rand terms Apple has been a loser and Barclays of course, has been a big loser in Rand terms but outside of those two, the portfolio is still up by 37 percent.

Around 27 percent of that has been Rand-related and the total annualised return, when you take 18 months and divide it into 12, is 26 percent – all around, pretty good. Remember though, that this is a portfolio that we’re holding forever. If the stock market were closed today, we’d be quite happy that in ten years’ time, the companies that are in this portfolio will be in better shape than they’re in today. That’s the intention of the investment.

Getting into the individuals… There you can see the annualised return. Clearly, Amazon.com (in Rand terms) is 184 percent or 123 percent annualised but there’ve been some nice increases there, thanks to the Rand’s depreciation. Of course, with Barclays and Apple I would argue that both of those are offering massive value at the moment. If you have a little bit of extra Rand that you’re looking to put into the global markets, those (particularly Barclays) would be the two that you should be putting some of your money into.

As far as the portfolio’s concerned, it’s a graphic exercise. You look at this and you say, “Thankfully, you had Amazon. How did you find it?” Well, you need a bit of luck in investing and the good fortune that we had in Amazon was not only in buying it but in holding onto it. It also belies the argument that some people have to say that as soon as a stock shows you a little profit, you should be cashing in that profit. Well, if we’d done that, we’d be looking a little sick right now. What I can tell you (from someone now living in the U.K.) is that this is a world that has been Amazon’d. It’s incredible how often one would turn online for your purchases. If you’d do a little exercise and go onto Amazon.com and have a look at what is available rather than going the traditional route, which we as South Africans have where we go to the shopping centres, browse around, feel something, and eventually buy what we think is good value after spending a lot of time.

You can do that online, very easily and Amazon, through their Amazon Prime Service, which has millions of members (I’ve joined it as well) … Not only do they give you free videos to watch and free music to listen to but actually, they will deliver your product in a day. It’s incredible. That’s why Warren Buffett had as much to say about Amazon in his Berkshire Hathaway AGM this year. He mentioned Jeff Bizos and Amazon half-a-dozen times, saying that they were a little late to understanding and appreciating that but that the world has really been transformed. In the same way that Facebook has transformed the media world and Google has transformed the advertising, Amazon has transformed the retailing world and is continuously eating away at the retailing operations. The only way to defend against Amazon it seems, is to get bigger faster and that’s why Markus Jooste at Steinhoff has been expanding (or trying to expand) as rapidly as possible into Europe.

You might remember. Steinhoff had two attempted takeover bids contested. They weren’t complete disasters because although Steinhoff didn’t get them, they made a profit out of that exercise. I interviewed Markus two weeks ago and I think he was telling me that it was €40m. That’s not small money in anybody’s terms and certainly, in South African Rand, it’s good money. They’ve now had another run at a company called Town Land, which is based here in the U.K. It would fit beautifully into Pep ad the existing operations that they have in the retail market in the U.K. They believe that by being focused on the bottom end of the market and by getting scale quickly, they can offset the advantage that Amazon would have.

More money in anybody’s terms and certainly in South African Rands that has money, but they have now had another run at a company called Poundland, which is based here in the UK, would fit beautifully into Pep and the existing operations that they have in the retail market in the UK and they believe that by being focused on the bottom-end of the market and by getting scale quickly, they can offset the advantage that Amazon would have.

Of course, on the other hand you have to realise that they are trying to grow their online operations to deflect the Amazon effect. The companies that are really in the sights of an Amazon expansion and that continues to expand rapidly are those who would be the natural market for time-poor, money-rich purchases and they would be the people who you’d see shopping online more often. So that’s the numbers there. Let’s go through the dividends. There was a dividend that came in from the Vanguard S&P 500, 318 shares or units that we hold there with the 95 cent dividend, was paid another $300 added to the portfolio and I’ve been doing a lot of talking, the questions are open, Stuart, you’re still with us?

I’m still here Alec. No, nothing yet. I think there’s a cold front over South Africa. There’s a bit of, maybe some brain freeze around, but nothing yet.

I thought that only came from eating ice creams on Durban beach but anyway. I have been talking a lot about Brexit etcetera but we are now open for questions, so send them through. You just need to literally type them up and Stuart will stop me and we can take them from there. It’s going through the individual parts of the portfolio. Let’s go to Vanguard. Remember that is about a third of our portfolio is put into this as you can see there from this graph. Look at the most recent number. It was a sharp decline, similar to what happened, if you recall, in August last year 2015 you can see the big drop there.

Unfortunately, not quite of the same extent to that and then again, as we began this year we had a really, really awful January. In fact, January 2016 was the worst year for shares on record and the market clawed its way back up from being around ten percent down after January to being two and a half percent up just before Brexit and along comes Brexit. The S&P 500 in the past is down by five percent which makes any growth on that pretty good going. Berkshire Hathaway has followed the market down, not quite as badly but it has been an outperformer for most of this year. It’s done better in 2016 but on year on year it’s still kind of aligning itself with the S&P 500 index. We bought it 18 months ago. Over that period it’s underperformed but Berkshire’s one of those stocks you put in your portfolio and you don’t worry about it.

Alphabet, that’s Google, as you can see, wonderful outperformance. The share price of our holdings is in blue and the benchmark is in red. In this case it’s the Nasdaq, that’s where Alphabet is listed and as you can see an outperformance there of 35 percent and Nasdaq having done worse in the past year than the S&P 500 Index, in fact twice as badly. Moving onto amazon.com, in the past 12 months it’s up 60% and it really started running a couple of months after we bought it in December 2014. It’s interesting to see because in January this year the share price came down very strongly and some of the thoughts were, at that point, that the FANG, as they call it: Facebook, Amazon, Netflix, and Google, those four shares, which had between them pulled up the S&P 500 Index for 2015, if those four companies did not exist, the S&P 500 index would actually have been down in 2015.

That’s the power of those four. In January this year there was a view and it ran through to February as well, that the FANG’s days were over. We didn’t think so. Well, maybe some of the others are but we don’t think that Amazon’s days are over and as you can see there very clearly, the stock has appreciated strongly since bottoming out in early February, so thank you to the FANG’s, thank you to Amazon, Stu?

Question from Jaco, Alec. He wants to know if you had an idea of how long the market will take to heal from Brexit?

Jaco, there are assessments for the moment which suggest that the worst is over and often that does happen. If you have a longer memory, you’ll recall that these hits tend to come hard and quickly and Mr Market overreacts. When we started off in this webinar, to talk about the Buffett principles, turn off the stock market, or in other words, buy shares that you won’t worry about if you turn off the stock market that have favourable long-term economics who understand the business, able and trustworthy management and they have an enduring motive, intrinsically value, those six, it’s a similar thing when you think about markets generally because their prices are not necessarily the value that you get.

The prices are determined by day to day fluctuations in the mood, the way that investors as a whole perceive and they don’t always perceive things correctly. Mr Market is a manic depressive, he panics, and he gets over exuberant. In the wake of Brexit, there’s no question that he’s panicked, he’s very much panicked over banking shares and you would now find that, it appears anyway that the panic is starting to quell a little bit. The banking shares have picked up a little bit from their worst levels. The Pound is upped significantly from its worst level, David Cameron’s going to Europe, the market is discounting the worst possible negotiating scenario and none of the possible up side, which could be in the UK and this has been lost by many of the commentators.

Those who voted to leave the European Union were the Wrinklies, as they call them, the older people and their argument generally, most of them, is that they went into a free market environment and the free market that they voted for became a runaway train which not long ago wanted to become the United States of Europe with one constitution for the whole of Europe which they don’t like.

Therefore, the Treaty of Lisbon, that’s really what the referendum was back then, which the Irish voted against, that was all to do with trying to bring Europe closer because if you’re going to amalgamate all these countries, eventually you want a federation that is tight and includes everybody, whereas the Brits are saying and the Ireland mentality possibly played here, the older Brits are saying, “We actually don’t want that. We joined you because you offered us a free market and now you’re saying you want to rule it”.

That’s really what it all comes down to and that’s likely to see sanity prevailing because markets are driven by common sense in the end of the day. Mr Market has very little common sense and Mr Market has overreacted, so I would say, Jaco, we might have seen the worst. It’s very possible that we have and if you were to be a follower of Mr Buffett then you would be that this is the right time to be buying when everybody else is selling.

A question on the dividends; what do you do with them, the ones that are received?

In this portfolio we put them into our cash holding. Therefore, just to go back to arena, we would not take the dividends out for any reason. I’ll just take you back to the portfolio and you can see. There we go. If you have a look down the bottom there underneath Barclays you have cash and the cash holding and portfolio, $3234, at some point in time we will reinvest that, but one of the disciplines we’ve given ourselves here is that we only make investments when you are with us.

I’ve been very keen on Facebook and I’ve been toying for a while now with dropping some of the holdings elsewhere to reinvest that money into Facebook, but nothing has been strong enough and certainly with the recent reaction of the market to suggest that you should be shaving off some more money from some of the holdings. What we would probably do, as we did with Barclays, is reduce some of the stake in the S&P 500 holding there in Vanguard and we would then take part of that and then use the cash that we have there and invest that cash into Facebook, just waiting for the right time to arena, but no, the cash stays in the portfolio.

Question from Kirstie Thompson. She says she has R3.5m in cash; she’s 44 and has no debt. Is now the right time, if so into what?

Kirstie, there is no doubt that if you have Rands and that sounds like what your money is in, you need to be protecting yourself against continued decline in the value of the currency and that is the reason we started this Global Portfolio and I still feel very strongly that’s the best way to protect yourself. What I would do if I was in your shoes, is I would replicate this portfolio but do it progressively. Try to take out the impact of timing. If you were to put all of your money into these various stocks today, then you are taking a risk on two things: You’re taking a risk on the markets and you’re taking a risk on the currency. Rather stagger it if you are comfortable, over three months, that’s probably okay.

If you are more conservative you can stagger it over six months, but it isn’t a smart idea to just take a full punt at any point in time because you’re then opening yourself up to the risk of market variations. We started this portfolio so that the clients of Standard Bank Webtrader or in fact any South African, because Webtrader is a phenomenal product which allows you to invest anywhere in the world. It’s to give you an understanding of what’s happening elsewhere. It’s a model portfolio if you like.

You don’t have to replicate everything that we have but the basic idea here is to make these investments, then you start learning about it. We have tried our best to find the best possible investments that we can and by doing this monthly update it gives you an understanding of why there’s been performance or why the shares have changed in the way that they have. The worst thing you can do is give your money to somebody else and then come back in a year’s time and say “Oh my goodness, what happened in this year?” whereas this way around you are informed on a monthly basis on exactly how your money that you’ve invested is performing. I would suggest that you replicate this portfolio but don’t throw it all in at once.

LH has an interesting question: Where can one get the best interest rate offshore instead of equity or bonds? I’m not sure it’s a very easy one to answer though.

It’s an impossible one to answer because interest rates always reflect the risk. You can probably get five or six percent in certain of the investments that you find but they would be high risk. The one I really like and we’ve spoken about it a lot on BizNews because I did investigate it, is Quanta. It’s a property portfolio run by a South African. The company is shared by Mike Wiley of Wilson Bailey and Robbie du Toit, the South African who runs Quanta and his partner, Andrew Davidson.

What they do is they raise money from investors and usually through crowdsourcing, they then take that money and put it into bottom end property, so the very cheap properties where you’re talking from probably £50 000, which is very cheap in the UK up to maybe £1mn, around about there, which have been sold or are moving or are being transferred, or in the process of transferring and they then have that guarantee that they can move that property quickly. It’s a great business model. I went to have a look at it. In that sector of the market those properties move very quickly. Here in the UK they have all kinds of other reasons without going into it and they offer six point eight percent in Sterling terms, thus what you have there is you have a property portfolio that is moving quickly. That’s why they can offer a reasonable rate of interest.

They are borrowing to put that money into those properties from a more expensive source because the big banks are not keen for pretty obvious reasons, to support a little company like this. They want to do bigger deals and in fact, they’re competing with them. They would then kick back, if you like, a share of the interest they are paying or the higher interest rate they’re paying to the investors and with Mike Wiley from Wilson Bailey being the chairman of the company and a big shareholder in it you really know that you have a reputable, sensible people who are busy doing it. I went to go and see them, we have endorsed them, just put Quanta into Google and you’ll see, so that would be, to me that six point eight percent in Pounds but a week ago it looked like a fantastic bet at six point eight percent in Sterling, but Sterling has dropped ten percent against the US Dollar.

Therefore, if you had an investment instead in US Dollars at zero you would have done better than in Sterling for the moment. These are very tricky global markets and a tricky situation that we’re in at the moment. Let’s move on. IBM is our deep value investment. As you can see, like the others as a consequence of Brexit. It too has fallen and fallen quite sharply. IBM was one of the biggest hit there and it’s not surprising because it does have a big exposure to Europe and then exposure to the UK as well. IBM however, is one for the long-term. I don’t lose any sleep about that one. Nova Nordisk, now this just shows you how incredible Brexit’s impact has been.

Nova has been under a little bit of pressure lately but it took another hit as a consequence of Brexit even though this Danish multinational that sells insulin to diabetics, has a big chunk of the global insulin market, the market leader in fact, in that sector and that’s a very, very strong moat that it possesses but when the sea goes out the rising tide raises all ships, I’m afraid when the tide goes out it hurts all ships and then Apple. I love Apple, I just love the company. I know it well, I’m very excited about the value that is being offered by Apple at the moment and as you can see it’s usually underperformed but by my estimation they are missing the point on two things, that the investors are, first of all, downgrading or down rating Apple because of its sheer size.

Secondly, they aren’t paying attention to the enormous investments that this very, very secretive company has been making in research and development. It’s been escalating its RND investment dramatically over the past few years. Something’s going to come out of it. They’re secretive, they’re not going to tell us yet, but when it comes out it’s going to be something, or I would bet that given the whole culture of Apple and the ecosystem that it has, it’s going to be something quite special, is that the iPhone 7 that’s scheduled for coming out, I think it’s in September? Who knows but it could be autonomous cars, i.e. driverless cars which are starting to now become a very, very serious opportunity. It could be something in renewables. There’s lots of speculation but what you can be sure of is whatever the next big thing, Apple will be right there.

Alec, just on Apple, Bruce asks: Is Apple’s heyday over? It doesn’t seem to meet Buffett’s criteria. China problem’s questionable management, iPhone being outcompeted. He wonders if you shouldn’t lessen the exposure in Apple, maybe in favour of Facebook.

Yes Bruce, interestingly enough Buffett has actually being buying into Apple and his portfolios have been increasing the stake into Apple. If you have a look back at our chart, just over that last D there, that increase in the Apple share price and these are relative graphs, we don’t show the actual share price but relative to the S&P, that was a direct result of news that Buffett is starting to accumulate Apple, so no I would definitely not be selling Apple shares at this point. This is your classic value opportunity and much as I love Facebook, I would rather take money out of the S&P 500 index and put it into Facebook and we probably will do that next month. Let’s just see how.

You want to be sure, I’ve made enough mistakes of buying at the wrong time, and because we only have one day that we can buy them on, we’re going to have to be sure that we’re doing the right thing. On this one though, the one thing you would not do is you wouldn’t be selling Apple right now, not a single share and that Ladies and Gentlemen is bringing us to the end of our webinar today and to give you the conclusion to it, when we started off here the big bet was the Rand would depreciate. It’s gone from $11.27 to $15.20. The Rand profit, as you can see annualised 23 percent, so that’s been the major kicker to our portfolio generally.

A major kicker, the other big, big beneficiary that we had was Amazon and I have no reason, in the same way as I think Apple is offering excellent value right now, Amazon, I wouldn’t be worried buying the shares today, not at all even though we are in the privileged position of having bought them a lot cheaper than the level they’re at, there’s no worries on that side. Google or Alphabet, they are starting to enjoy the market’s appreciation of a slightly different approach to the way they run the business as far as expenses are concerned. Investors love to see the expenses being kept under control and with Ruth Porat, the new financial director there showing an ability to do that, to bring the nerds and the techies if you like into line, the market likes that. Nova Nordisk has had a bit of a setback in the last little while?

That’s to do with some of its patents around the world but it has a strong grip on the insulin market and one that wouldn’t be loosened lightly, The S&P 500 Index is, if you like, our bank. We just put a big part of the portfolio in the market generally for the S&P 500 and that’s given what’s happened in Rand terms there, annualised 21 percent, nothing to worry about. Berkshire has underperformed recently, that doesn’t worry me, and IBM is a big value bet, as is Berkshire by the way at the moment. Both of those have limited downside. Apple is a massive value opportunity and then, Barclays Bank I’m expecting a pretty rapid rebound when the realities of Brexit come back. I like the way the portfolio is balanced. We’ve got to find place for Facebook but that will come, I guess, in due course. Stuart, that’s us for today.

Yes, thanks Alec. No more questions this side. I think it was very interesting. Thanks a lot from Johannesburg.

It’s a pleasure and adios from London until next time. Thank you for joining us.